Research: The effect of BEE on the profitability and competitiveness of firms
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Our Research posts are about the latest academic research being done in the School of Economics. This week:

The Effect of BEE on the Profitability and Competitiveness of Firms on Micro-Level in South Africa

by Me. M. Kruger & Prof. E.P.J. Kleynhans

Prof Kleynhans

This study determines whether the implementation of a Black Economic Empowerment (BEE) policy in firms on micro-level has any positive or negative effect on the growth of these firms in terms of profits and competitiveness.

The key obstacles hindering optimal profitability levels and competitiveness in firms in South Africa is the ineffective application of labour legislation policies and tools aimed at narrowing the income gap between different racial groups and resolving inequality among a diverse workforce. Apart from implementation, funding of BEE enterprises has become a problem, causing the sustainability of BEE initiatives to be short lived. Furthermore, the aftermath, when labour legislation policies are removed and BEE companies are left to fend for themselves, has not been taken into consideration.

A quantitative study was undertaken to find empirical evidence supporting the idea that a high BEE Score is associated with higher profitability and competitiveness of companies. The empirical investigation, based on regression analysis, correlations and other methods, was based on data evaluated over three years stretching from January 2009 to December 2012. This time period was selected as it is the most recent data available and relevant to the study. The BEE Scorecard was used to obtain the BEE score of the top 50 BEE companies in South Africa. Hereafter, the top 50 companies’ financial information was gathered from their Johannesburg Securities Exchange (JSE) information catalogues.

The study added value as it is the newest research on BEE and attempts to estimate the effects of BEE and labour legislation on the profitability and competitiveness of firms on micro-level. The study found that the implementation of BEE within companies has a positive effect on profitability, turnover and investment. Numerous factors have, however, been hindering and other factors have been enhancing the success of BEE. This causes economic growth within companies to remain stagnant. In order for this push-pull effect to subside, correctional procedures are still needed.